Executive Summary
Honda Motor is one of the most successful companies in the world. It has attracted massive interest due to its unique corporate strategy. Its sheer ability to recognize the forces, as outline by Michael porter 5 forces analysis, in its operating environment has contributed heavily to its success.
Like wise, it has been able to utilize the value chain and hence attain a competitive advantage. For a long time it has been recognized as leader in technology. Similarly in its operation activities it has been able to reconcile dichotomies existing between human dignity and efficiency by adopting an effective free flow production process.
However, its success has not come free of challenges. A good example is the fact that it has failed to reconcile the dichotomies existing between its internal resources and positioning. While it positions itself as an innovative and a leader in developing technically advanced cars. Plus, it also possesses resources and capabilities to do so.
The market reaction have not supported this fact, instead consumers have opted to buy simpler model. Balancing the global integration and pressure from local responsiveness is also another major challenge. Already, Honda has been accused of being ‘un-Japanese’ favouring the Global market more than the local one. This allegation holds true since most of its operation a located outside its home country.
However, it handles the cultural dimension in foreign countries by paying close attention to Whittington’s suggestion of systemic approach to strategic management. It has done this by successful partnering with companies operating in potential markets therefore gaining from their knowledge and skills. However, in any market Honda can benefit greatly by reconciling dichotomies existing between the classical and processual approach to strategy.
Introduction
Developing a strategic plan is an important component to any business. This is because it outlines the long term plan and explains how competitive advantage is going to be achieved. Various influential people have voiced their opinions on how a business should go about developing, planning and implementing their strategy.
As result, key dichotomies have emerged. However there some key organizations, like Honda, which have managed to reconciled some if not all dichotomies. As result they have achieved attention grabbing success. Therefore assessing how they incorporated the various opinions of strategic experts is a worthwhile endeavour.
Porters Analysis
Michael Porter 5 Forces Analysis
Michael Porter, a strategic management genius, has various key concepts under his name. The five forces analysis is an example of his influential concepts that has been highly adopted by scholars and businesses. Porter suggested that a business should conduct an analysis of firms offering similar services or product. By doing so, the strategic managers are able to determine the level of rivalry in the industry and hence take necessary measures.
Also analysing the threat posed by substitutes will establish what product and service can be developed to replace the current firm’s produce. In addition, if an industry poses the potential of providing high profit margin, it will motivate new firms to participate in it. Therefore an organization is likely to enjoy reasonable profits if its industry contains are number of barriers limiting entry of new firms (Morgan 2008).
Porter also considers supply power as important component of attaining competitive advantage since a powerful supplier can influence the organization cost of production and even the final price of the product. The finally Buyers bargaining power, describes the amount of influence consumer have on the firm.
It is mostly strong when all or either of the below situation occur. That is when; the buyers concentration is higher than that of the firm, the buyer purchases a significant volume of produce, the buyer is well informed about the state of firms industry, and finally if there is a high existence of substitute goods, just to mention a few. (Morgan 2008)
Value Chain analysis
Value chain analysis, is another model generated by Michael Porter. It outlines the various activities a firm gets involves in while creating value to its customers. Porter categorized this activities into two; the primary and supportive activities. The primary activities are; inbound logistics, this are the activities involved in receiving the inputs from the suppliers and storing them in the warehouse till they are needed.
The second group of activities is the operation, which involve manufacturing or transforming the goods to finished products. After the inputs are transformed to outputs, outbound logistic activities are employed. This involves distributing the goods through the necessary supply chain.
To inform the customer about the products and hence generate sales revenue marketing and sale activities are taken on. The latter stage involved guaranteeing the customer that the product would meet their needs. Therefore, essential services, such as customers support should be included. Porter went ahead and listed procurement process, human resource management, technology development and effective management of the firm’s infrastructure as the activities that support this primary activities (Morgan 2008).
The Case of Honda
Honda Motor is the one of the world’s most successful automobile company. Off late it has joined the ranks of IBM, General electric and other companies which have attracted sufficient interest of scholars and researches due to the success of their strategies (Wallnau & Feinberg 2008). Part of the success of this company can be credited to the understanding of Michael porter’s suggestion and applying them in the organization either by design or default.
For example, Honda has been able to curb threat from rivalry by adopting are unique strategy. This strategy involves reconciling the dichotomy existing between the management style of western firm and that of the Japanese firms. Japanese model of management and that of western countries have been cited to be on different ends.
Most managers prefer to choose one and therefore lose out on advantages offered by the other. However, Honda’s approach is never to accept any trade off’s and hence it has avoided the negative aspect of Japanese management style and incorporated some aspect of western culture. As result, it has increased its competitive edge globally avoiding rivalry especially in the home market.
It is the reconciliation of management style that enables partner effectively with foreign firms and hence diversify it market. A good example is the fact that it was the first Japanese firm to set operation in North America by successfully partnering with the now well known rover group (De Wit & Meyer 2004).
According to Porters, substitutes are products from other industries that can replace firm’s products (Morgan 2008). Arguably, there are few substitutes to automobile industry, which include train, air and sea/water mode of transport (Wallnau & Feinberg 2008). Luckily, this organization has sufficiently diversified its products to produce high power racing cars, motorcycles, small boats engines, power products, among others (De Wit & Meyer 2004).
Similarly, suppliers pose very little power since this industry is highly fragmented and therefore one supplier depends to a large extend on one or two automobile firms. This in turn gives the automobile an upper hand. The bargain power of the buyers is relatively low since averagely very few consumers buy in large volume.
However, the increasing buyer information have forced this company to advanced technological, coming up with products that do not destroy the environment, are fuel efficient, and still do not compromise on engine power. This approach of advancing and incorporating technology mirror the utilization of value chain analysis by strategic planner in the firm (De Wit & Meyer 2004; Wallnau & Feinberg 2008).
Advancement technology has enabled the company eliminate the tradeoffs associated environmental conservation and engine quality. Therefore, it has been heavily featured in Honda’s sales and marketing strategy.
Also, Honda uses technology in its model replacement strategy. This operation activity involves replacing the product feature seen by the customers first, then followed some years later with changes of those feature the customer cannot see. As a result the value of the products is increased while reducing the lead time of producing the car. This has in turn giving the firm a competitive advantage since competitors are unable to replicate it.
In addition, Honda recognizes the importance of managing its human resource with dignity. Therefore it reconciled the dichotomy existing between efficiency and dignity during the operation process. This it did by incorporating the free flow principle that reduce amount of work and give customers more control during the production process (De Wit & Meyer 2004).
Positioning versus Developing Internal Resources
Reconciling the dichotomies existing between developing the internal sources and effectively positioning is a mystifying task. This is because the two factors are found on different sides of the spectrum. For example, positioning involve creating a positive perception about the company and its products to an external viewer or environment.
However the fact that it is subject to the person viewing the organization has provide inconsistent results. Despite this, a proper analysis of the external environment can improve its chance of success (Morgan 2008). Honda, strategic planners have over the decade strived to position it as manufacturer of classy and technically innovative sporty cars (De Wit & Meyer 2004).
On other hand, developing internal sources involve incorporating company’s internal inputs to achieve the strategic objectives. A firm which utilizes its core competencies is likely to achieve a competitive advantage. According to Swinton (2006) core competence are unique abilities that a firm develops over a period of time as a result of continuous learning and accumulation of necessary skills.
They act as useful resources since they provide an organization with the power to exemplary add value to the customers needs. Adopting the internal resource-based approach involve paying enough attention to the value chain activities that increases the company’s competitive edge (Swinton 2006). For example, Honda motor advancement in technology and unique engine design provides the company with core competence (De Wit & Meyer 2004).
Honda has been successful in reconciling the dichotomies that are embodied in the value chain activities. To be specific, the dichotomies are mostly found in areas such as the supplier-buyer relations, efficiency versus employee’s dignity, and sequential production versus a simultaneous one, among others. However, when it comes to reconciling dichotomies associated with positioning versus developing internal resources, the organization seems to face hurdles.
For example the ability of Honda to use technology to produce high quality superior engines, and it effort to position itself as designer of sporty and innovative cars, has not been reflected in the consumers’ response. This is because most of its global sales are not derived from models that reflect these values, but it is from the simple less innovative and marketed brand (De Wit & Meyer 2004).
Pressure from Global Integration and Local Responsiveness
Despite how much an automobile industry might strive to confine itself to the local market, various influences makes globalization inevitable. Specifically this pressure can either be due to factors associated with the automobile market or those that surrounds the production process.
Global competitors and consumers are examples of factors affecting the automobile markets. They therefore force an automobile company to join the global arena. By doing so, the company is able to utilize its value chain in more effective way (Wallnau & Feinberg 2008; Swinton 2006).
Honda has been able to successful integrate globally. In fact, it has been so successful that it is considered a very small player in its home turf, but globally a multinational giant (De Wit & Meyer 2004). According to De Wit & Meyer (2004), only a third of its turnover comes from its home country.
The need to recoup the initial and operation massive investment is another factor that pushes such a company to integrate globally. Similarly, as local consumer enjoyed an increase range of option from global competitors, their bargaining power increases. Therefore, automobile companies are forced to such for consumers in other countries (Wallnau & Feinberg 2008).
However, sometimes different economies utilize their value chain different. In addition, the various factors in the competitive environment, as summarized in porter 5 forces analysis, result in a local responsiveness pressures (Swinton 2006). For example, a certain foreign economy might be dominated by either a variety of domestic firms or a single powerful firm. Similarly, some foreign markets are largely occupied by substitutes.
A case in point is venturing into an environmental conscience nation whereby most of its citizen either use public transport, such as buses and trains, or prefer motor cycles. Host Government regulation is another form of pressure, whereby automobiles have to adhere to certain regulations and specifications (Swinton 2006; Wallnau & Feinberg 2008).
Honda has faced various challenges and pressures in the local environment due to its management style. The fact that it has incorporated some western culture aspects, has led it to being considered ‘un-Japanese’. This is because some analyst considers it to have enjoyed a global integration to a point whereby its need for the local market has been minimized.
This factor can be supported by the fact that are huge chunk of its revenue figure is not from Japan. However, proponents of its management structure argue that by incorporating the good values of western management style and that of the Japanese, it has balance both global integration and local responsiveness need efficiently (De Wit & Meyer 2004).
Schools of Strategy Approach
The influential Whittington went a head to distinguish the various approach of strategy management. Classical and Processual are among the approaches he described. The classical approach implies that strategic managers are rational and therefore deliberately plan and organize various factors that will help in profit maximization. One major assumption under this approach is that in a free economy an efficient market is bound to occur.
Therefore, provided the organization has effective leaders who can objectively make sound and critical strategic choices, it is likely to succeed. The market environment will automatically present an opportunity and therefore implementing the chosen strategy will involve utilizing the corporate structure, process and policy to maximize on the presented opportunity (Swinton 2006).
Processual school of thought, on the other hand acknowledges the business environment is dogged by a number of factors. Therefore, the strategy that was initially developed might be altered by various factors during the implementation process.
Hence, instead of developing full strategic plan in the initial stages, manager should consciously develop a strategy based on utilization of internal competencies and analysing the external environment. Top managers therefore have a duty of constant improving their knowledge and experiences. Also to guarantee success, it is mandatory for them to enhance the internal process by improving the core competencies and capability (Swinton 2006).
Since the classical school of thought assumes top managers are rational, Honda encouraged few top executives to be in charge of key decision making. It enabled this by creating a facility layout whereby top executives shared an open office. Senior executives saw this as a way of encouraging horizontal sharing of information. However, after Kawamoto took over he initiated a processual approach. This is illuminated by the fact that he changed the organization decision making process to be inline with the changing business environment.
Although it could be easily assumed that the organization had abandoned its horizontal decision making process (across managers only), this was not case. Honda had now reconciled the dichotomy existing between the vertical and horizontal decision making process. Whether to make the decision vertical or horizontally, depended on the market situation. The now interchanging approach acknowledges the market is not efficient as it is affected by emerging factors (Swinton 2006; De Wit & Meyer 2004).
Applying Both the School of Thought
The reputation of Honda in reconciling management dichotomies might compel it to apply both the schools of thought. If it does so, it will avoid the limitation of either approach. At the same time, it will also eliminate the trade offs associated with choosing an approach over the other.
A good combination might be taking on classical fundamentals of profit maximization through rationally and intentionally planning. Simultaneously, adopting the Processual approach emphasizes for manager to develop core competence that will enable them simplify complex matters.
Here the manager should not only develop competence of only tackling the market environment but also, should improve the capability of managing the human resource. This is particular important since not every individual is driven by the desire to maximize the profit of the organization. Understanding and addressing the unique needs of each staff will result in an increase in competitive advantage (Swinton 2006;De Wit & Meyer 2004).
However, if Honda chooses to adopt only one approach, then it should go with the processual approach. This is because the approach does not merely assume the market environment is efficient, or either separates the process of strategy planning and implementing. It acknowledges that during the planning process there are number of factors that the strategist can miss out on.
The automobile industry especially faces various challenges that can alter the environment therefore distorting the strategy at hand. For example, Honda has effectively used this strategy and hence has been able to adapt to new demands easily (Wallnau & Feinberg 2008).
A good case in point is adopting new technologies that ensure fuel efficiency therefore avoiding environmental concerns. The fact that Honda has been able to reposition itself to the current market situation indicates that it has used its strategy plan not at as final document, but as guideline to help it achieve competitive edge (Wallnau & Feinberg 2008).
Systemic School of Strategy Approach
Hofstede threw a spanner to the management theories that implied management practices can universally be applied. Through his cultural dimensions theory, he challenged the notion that deep inside human being are the same. Therefore, he concluded that people from a specific region will react differently from those hailing from other region.
Whittington understood this when he was outlining the systematic school of strategy. According to this school of thought business should adopt strategies based on the environment they are operating in. the strategies adopted should be heavily influence by the culture and values of that environment. Therefore strategic managers should not strive to rational apply what they think is effective based on the knowledge of their origin.
What they have acquired from their home country might not hold true in this new environment. In addition, it is not only the customer who might be different, but also a cultural diverse workforce. The workforce does not have any less effect on the company’s competitive advantage. For that reason factors affecting their performance, such as cultural dimension, should be carefully considered (Swinton 2006).
As mentioned earlier, most of Honda’s revenue stream from different parts of the world. Therefore, its strategic planners should consider some, if not all aspects of the above approach. To shield itself from the implications of diverse cultural dimension, Honda adopted a philosophy of manufacturing vehicles in their target market (Wallnau & Feinberg 2008). As a result, most of its manufacturing plants are being operated outside its home country Japan (De Wit & Meyer 2004).
On the other hand, this factor presents the challenge of managing a diverse workforce. Even at its home country, the company has grappled with whether to incorporate certain ‘negative’ cultural aspects.
The founder Honda however decided to risk it all and adopt a system that awards individual contribution and hence motivate the younger employees to take more positive action. The Japanese culture on the contrary is not very conducive for the younger generation. For example, awarding is based on status quo, seniority and collective decision making (De Wit & Meyer 2004).
To effectively penetrated in different cultured countries, Honda will have to acquire skill that can enable it interact effectively with the customers there. A good way to do this will be either to partner with organization operating in the environment it is considering venturing.
Wallnau & Feinberg (2008), cite that it adopted this strategy, by buying small percentage of established motor cycle firms, to venture into the US market. Similarly it used the Rover partnership to enter the North American market an area which it had previous faced difficulties in understanding the consumers (De Wit & Meyer 2004; Wallnau & Feinberg 2008).
Conclusion
No doubt the corporate strategy determines to a great extent the level of success a company is going to enjoy. However, if a company is to enjoy sufficient triumph as that of Honda, it must adopt anew thinking. The traditional method of strategic management whereby an organization subscribes to one school of thought or management style is limiting. Honda has set the example of ascribing to a no trade-off policy.
This approach involves reconciling various management dichotomies. When presented with more than one options but forced to adopt just one, take the best of either side while neglecting the worst of each. Without a doubt this will pose some challenges but by persistence will ensure organization enjoy the fruits of its labour.
Reference List
De Wit, B, & Meyer, R., 2004. Strategy Process, Content, and Context: An International Perspective, 3rd Edition. Thomson Learning: London.
Morgan, K., 2008. Globalization and Strategic Management Issues. London: Palgrave.
Swinton, N., 2OO6. Strategic Management in Globalization Environment. Norderstedt: B.O.D.
Wallnau, L., & Feinberg L., 2008. Understanding the Basic Ingredients of an
Effective Corporate Strategy: Honda Motors Case Study. Leadership Management Journal, 32 (8), pp. 120-270.